Interserve

BUY

11/01/2012

Support services and construction heavyweight Interserve (IRV) is enthusiastic about the strength of its overseas markets.

The fully listed concern has issued a trading update for 2011 in which it remarks that a 'strong performance' in Australasia, the Pacific Rim and Saudi Arabia helped to 'counteract the impact of the Arab Spring and cyclical weaknesses elsewhere'.

Furthermore, Interserve notes that it has won £400m worth of contracts since its previous trading update on 14 November. These include work to construct two new divisional headquarters for the West Yorkshire Police and an infrastructure project for a new power station in Oman.

In an interview with Growth Company Investor, chief executive Adrian Ringrose enthuses that 'the sun is shining in a number of markets and we are there to catch the rays'. He remarks that Saudi Arabia is 'developing on so many fronts such as housing and schools', drawing attention to Interserve's work through its equipment division at the Grand Mosque in Mecca, which the Saudi government is redeveloping to accommodate increasing numbers of pilgrims for the Hajj (a pilgrimage to Mecca that Muslims are required to undertake as part of their religion).

In Australia, Ringrose noted that there is extensive work in the country for projects such as the Gorgon gas field off the coast of Australia. He argues that Australia is 'developing its programme to move up the league tables as a producer of gas'.

Nearer to home, he draws attention to contract wins in Wales and south-west England to find welfare recipients work as well as its plans to bid for prison outsourcing contracts and the running of probation trusts.

Analysts at Collins Stewart are forecasting pre-tax profits of £71.9m (for earnings of 47.6p a share) on sales of £1.83bn for 2011. For 2012, the broker sees profits of £75.6m (for earnings of 45.1p a share) on revenues of £1.76bn and looks for dividends of 18.9p and 19.8p a share for 2011 and 2012 respectively.

Last recommended by Growth Company Investor last August at 288.75p, the shares currently trade at 318.4p. A company that is well buttressed by its exposure to buoyant Middle Eastern markets, the group holds a solid order book, with the shares currently offering a yield of 6.2% on 2012's dividend. In a weak support services sector Interserve represents one of the stronger offerings. We retain our buy stance.